Legislature addresses insurance changes for state workers

Even before Gov. Haley Barbour added health insurance changes to the special session agenda, an army of state workers began manning the phone lines and dispatching e-mails about proposed legislation that could change health insurance coverage for more than 120,000 Mississippians and possibly raise premiums paid by some retirees by 50%.

“What has not been mentioned in the media is … all retirees under the age of 65 will no longer have their health insurance subsidized by the state,” said Anita Toler, president of the Mississippi Retired Public Employees Association (MRPEA). “This is the first step toward all retirees who have the State Health Insurance Plan to pay for their own insurance. Life insurance would stop. What you have paid into the plan would be lost. This is critical. We are in a fight to preserve our Public Employees’ Retirement System.”

House Insurance chairman Mark Formby (R-Picayune) said Toler is mistaken. “I authored the bill (House Bill 26), and that’s absolutely incorrect,” he said. “All state employees who are currently under 65 and retired will be grandfathered in, in perpetuity, unless this Legislature comes back and changes it. All state employees currently employed, and who served 25 years before retirement, will be grandfathered in, also in perpetuity. They will be protected as of January 1, 2006.”

A national trend

Toler said a national effort is underway to convert pension plans from a defined benefit plan, which Mississippi has, to a defined contribution plan. Several states have converted to the new plan. However, West Virginia and Nebraska are among the states that converted to the defined contribution plan, and returned to the original plan.

“Mississippi has been targeted as the next state to convert,” said Toler. “The groundwork is being laid by making the PERS look bad. Misleading statements are being circulated (about) bad investment management over the last three years…increased benefits for retirees have increased the unfunded accrued liability…and the governor wants a bipartisan committee to study the PERS system and delay the 1% increase in the employer contribution rate, ensuring that the unfunded liability would go beyond what is actuarially sound. This would open the door for the defined contribution plan.”

The defined benefit plan is based on the years of service at the time of retirement, four years of the highest salary and other factors to calculate the amount of money a retiree would receive for the remainder of his life. The defined contribution plan is similar to a 401(k) plan, with the employer contributing a small percentage. However, the employee is responsible for investing the money, explained Toler.

Sounds good, but…?

“That sounds really good on the top of it, but the majority of state workers don’t make the kind of money that would allow them to invest,” she said. “Also, not everybody is well versed in how to invest money, and they’d have to rely on other people to tell them, and you don’t always get good advice from your best friend. With the defined benefit plan, money is deducted from each paycheck, and they are assured of either getting a monthly benefit when they’re eligible or a refund if they leave early. I’ve been involved here for nearly 32 years, and I’ve seen people come in who are so grateful that they have a benefit to go along with their Social Security.”

The price tag to the state for this fiscal year’s health insurance premiums for the 119,000 active state workers, not counting retirees, is $511 million, said Formby. The existing plan is 100% paid by the state, and state workers pay for health insurance benefits for their dependents. Beginning the next fiscal year, the state will pay $305 per month in premiums per employee, up from $280.

“A number of state employees asked me if their premium was going up,” said Formby. “Based on the language in this bill, it will not be affected. The Mississippi Legislature doesn’t set the premium rate anyway. A management board consisting of appointees and state fiscal officers determines the premiums, benefits and deductible levels.”

To defray expenses, Barbour has said he wants to increase health insurance options for active workers, including an alternative to eliminate premiums, raise the deductible, and create a tax-free health savings account, allowing state workers who do not use their health insurance a less expensive choice. The plan would still be paid 100% by the state.

“If we get a grip on it, 10 years from now, we could be saving $100 million a year by getting the program actuarially sound,” said Formby.

Another consideration calls for a monthly $25 premium for active employees to buy additional benefits, a similar deductible and additional coverage. State workers currently pay a $450 deductible for self-only coverage within the network and $900 for physicians outside the network.

“This could be seen as moving toward the defined contribution plan,” said Toler. “They’ve talked about a health insurance savings plan for some years, and I think it would be alright. The only thing I’d have to look at would be the base plan, which practically covers nothing. If you want a good plan, you’d have to pay the increased rate to get the increased deductible. I’ve heard the tax-saving plan would do a good job. We’d really need to see what they’ve got in mind.”

An initiative on the special session agenda calls for a plan that would increase premiums for early retirees between the ages of 50 and 65 by at least 50% over the next 24 months. Retired state employees already pay premiums out-of-pocket that are capped at 15% higher than those of active workers.

“We’re very concerned about those people who are under age 65,” said Toler. “If the premium is so high they cannot find health insurance, they’re going to have to go elsewhere and may not be able to afford any other kind of health insurance. A lot of people don’t know that these retirees pump about $1 billion back into the economy of Mississippi, so I think we’re a valuable asset.”